Warren Buffett Says Buy This Vanguard Index Fund -- It Could Turn $400 Per Month Into $820,000

Under Warren Buffett, Berkshire Hathaway stock returned 19.7% annually between 1965 and 2025, nearly doubling the 10.5% annual return in the S&P 500 (^GSPC +0.66%). That makes Buffett a great source of inspiration, and he consistently recommended an S&P 500 index throughout his career.

"In my view, for most people, the best thing to do is to own the S&P 500 index fund," Buffett said at Berkshire Hathaway's shareholder meeting in 2021. Investors have several options, but Buffett himself selected the Vanguard S&P 500 ETF (VOO +0.68%) when going head-to-head with a hedge fund in the early 2000s.

Following Buffett's advice could turn $400 per month into $820,000. Here's what investors should know.

The Vanguard S&P 500 tracks the S&P 500, which measures the performance of 500 large U.S. companies. Included in the benchmark index are value stocks and growth stocks from all 11 stock market sectors. The S&P 500 is widely regarded as the best barometer for U.S. stocks because it covers about 80% of domestic equities by market value.

However, the S&P 500 also includes over 50% of global equities by market value, providing exposure to many of the most influential companies in the world. Listed below are the top 10 positions in the Vanguard S&P 500 ETF

There are a few simple reasons Warren Buffett believes an S&P 500 index fund is the best way for the average investor to get stock market exposure.

First, buying individual stocks requires much more work than the average investor is willing to undertake. Investors need a thorough understanding of a business to determine whether it possesses a competitive advantage. "Never invest in a business you cannot understand," Buffett warns.

Second, beating the S&P 500 is challenging even for professional money managers. Buffett made this point in 2007, when he bet that an S&P 500 index fund would outperform a group of hedge funds over the following decade. He won that bet decisively.

Third, the S&P 500 is a cross-section of the American economy, arguably the strongest economy on the planet: 75% of the 20 largest public companies are based in the U.S. "For 240 years it's been a terrible mistake to bet against America, and now is no time to start," Buffett wrote in 2016.

Fourth, the Vanguard S&P 500 ETF has a very low expense ratio of 0.03%, meaning shareholders will pay just $3 annually on every $10,000 invested in the fund. Professional money managers tend to charge far more, and they tend to deliver worse returns, according to Buffett.

The S&P 500 returned 1,790% (10.2% annually) over the last three decades, despite three U.S. recessions. During that time, the S&P 500 also endured 16 market corrections, four of which deepened into bear markets. That record underscores the resilience of the U.S. stock market, and supports the case for patient, long-term investing.

If the S&P 500 delivers identical returns in the future -- a plausible outcome given that we considered 30 years' worth of data -- $400 invested monthly in the Vanguard S&P 500 ETF would be worth $77,000 after one decade, $281,000 after two decades, and $820,000 after three decades, provided dividends are reinvested.

Here's the bottom line: Warren Buffett believes an S&P 500 index fund is the most prudent form of stock market exposure for most investors, and history says investors who regularly add money to an S&P 500 index fund can amass significant wealth over the long term. The Vanguard S&P 500 ETF is an attractive option because it has a very low expense ratio.